Medicare Levy Surcharge - Family Surcharge Threshold - Eligible Termination Payment included in taxable income

Is an eligible termination payment (ETP) included in a taxpayer's taxable income for the purpose of the medicare levy surcharge (MLS) under section 8D of the Medicare Levy Act 1986 (MLA 1986)?

Yes. The taxable income for the purpose of calculating the MLS under section 8D of the MLA 1986 must include an ETP.

The taxpayer's taxable income for the income year includes an ETP and the taxable income is more than $13,807.

The combined taxable income of the taxpayer and their spouse exceeded $100,000.

The taxpayer did not have private health insurance during the income year.

Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income comprises statutory income. Section 10-5 of the ITAA 1997 provides that statutory income includes ETP which is discussed in Part III, Division 2, subdivision AA of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 4-15 of the ITAA 1997 provides that taxable income is calculated as follows:

Taxable income = assessable income - deductions.

Subsection 3(2A) of the MLA 1986 provides that in section 8D, "net income" and "taxable income" have the meanings that they would have in that section if subsection 271-105(1) of Schedule 2F to the ITAA 1936 was ignored. Section 271-105 of the ITAA 1936 provides adjustments for amounts subject to family trust distribution tax before it has been classified as assessable income.

As the taxpayer was not in receipt of amounts subject to family trust distribution tax no adjustments to assessable income is required.

Accordingly, the ETP is assessable income and is included in a taxpayer's taxable income for the purposes of determining MLS under section 8D of the MLA 1986.